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Patentability of software in Italy & partial recovery of profits (infringement of patents on marginal aspects of a product)
BlogLimeGreen IP

By judgement of January 3rd, 2017, the Turin Court of Appeal delivered a monumental decision in a longstanding patent dispute concerning the validity and infringement of patents relating to an Electronic Program Guide (EPG) for digital and satellite television. The patented technology related to a system for selecting television channels, to be implemented in televisions, decoders or other devices suitable to receive an analog or digital television signal. In the case at issue, the relevant devices were television digital decoders.

The alleged infringer challenged the validity of the asserted patents, among others, on the ground that the subject matter was software as such, which was not eligible of patent protection.

The patent owner sought compensation for damages to be calculated also on the basis of the amount of the profits earned by the infringer through the sale of the infringing decoders.

Patentability of software

The Court rejected the argument that the patents’ subject matter was a computer program not eligible of patent protection. The Court, endorsing the opinion of the court-appointed expert, held that a computer program may be subject to patent protection any time it brings about “a technical effect which goes beyond the mere physical interaction generated by the program once run in a computer“. In the case at stake, the Court found that the effect of the program was not limited to a mere presentation of information but it rather consisted of “a particular method of commuting from a grid-organised electronic guide to another in single-channel mode, according to predefined modalities, and therefore in a particular and more effective interaction man-machine“.

In light of that, the Court observed that the prior art disclosing guides in paper format could not anticipate the patented invention, as not addressing the same technical problem (identified in the provision of an improved interaction between the man and the machine in the selection of television channels).

Recovery of profits

As a consequence to the infringement, the patent owner sought the recovery of the profits earned by the infringer through the sale of decoders implementing the patented technology. The alleged infringer rebutted that the recovery of the entire profit was exorbitant, as the patents covered only a secondary technical aspect of the products at stake. Neither was the technology decisive for the functioning of the devices nor was it in the appreciation of the public from a commercial standpoint. To be sure, there were technical advantages associated to the patented technology. However, consumers were unlikely to purchase the products for that reason. Hence, the alleged infringer asked the Court to set aside the first instance decision, which instead ordered the restitution of the entire profit generated through the sale of the accused products.

The Court noted that the technology implemented in the accused products “did not enable an essential functionality of the decoder, as it did not have any relevance as to the specific and fundamental function of the decoder, which is, indeed, that of decoding the television signal for the switch to the digital [system]”. That said, the Court draw the conclusion that the method of compensation based on “the recovery of the entire profit deriving from the sale of the decoders, relied upon by the court of first instance, was not consistent with the rationale underlying Article 125 (3) of the Italian Intellectual Property Code [implementing under Italian law the provision on recovery of profits laid down by the Enforcement Directive 2004/48/EC], as it determined in the case at stake an overcompensation which certainly amounted to punitive damages, as such not consistent with the [Italian] legal system“.

According to the appellate Court, the recovery of the entire profit would be justified either in the case the patent is basic for the functioning of the product or “also in the case that evidence is adduced that a feature implemented in the product and covered by the patent is particularly appealing on the market, even if this feature is not key from a technical standpoint but [it is such] from a commercial point of view“.

In sum, under the circumstances at stake, the Court held that the recovery of profits should be limited “to the portion of profits earned by the infringer which is caused by the infringement [of the patent] and shall not extend to the entire share of profits generated by the infringing products“.

Comment

Although patentability of software has been (and still is) hotly debated in Europe and in the USA, we are aware of only a few Italian precedents that addressed this topic. The appellate court of Turin held the view that the EPO approach to software patentability should be followed.

To our knowledge, this is the first case an Italian court addresses the issue of compensation for damages caused by the infringement of patents covering marginal aspects of a product, clearly stating the principle that the patent owner, under such circumstances, would be entitled only to a partial recovery of the profits made by the infringer. While the reasoning of the court is based on the general rule that causation is to be proved, as a matter of fact, when it comes to patent infringement, the burden of proof imposed on the patent owner might not be easy to discharge.

It is worth noting that the rules of compensation for damages, laid down by Article 125 of the Italian Intellectual Property Code, generally apply to the violation of any registered and non-registered intellectual property right (e.g. trademarks, designs and know-how), so that the precedent of the appellate court might have far reaching application, to the extent similar circumstances might occur in cases of infringement of other intellectual property rights.

As the decision is subject to appeal before the Italian Supreme court, this could be not the last word said in the matter at stake.